Do your clients need help with their family foundations? New research identifies effective practices for governance and grant-making. Use this quiz with your philanthropic clients.

October 16, 2008by Kevin Laskowski

A new survey by the National Center for Family Philanthropy has concluded that most family foundations are conscientious guardians of charitable legacies. They observe high ethical standards of grant-making practices, including fiscal oversight and accountability. Are your clients among them?

In September, National Center released highlights of research that will have a lasting impact on the field of family philanthropy.

As part of the National Center’s continuing Pursuit of Excellence initiative and building on the knowledge developed in Generations of Giving by Kelin Gersick (Washington, DC: National Center for Family Philanthropy, 2004), the Center recently surveyed a random sample of 2,000 family foundations to gain insight into how families were doing around issues considered the hallmarks of good foundation practice. Some 200 foundation representatives, 84 percent of whom were family members, completed the survey, presenting a revealing look at legacy, vision and mission; governance; family dynamics; grant-making; and finance, administration and accountability. The results were very encouraging.

Use the following quiz with your philanthropic clients, punctuated with questions from the survey, for a quick look at how your client compares.

What is the philanthropic mission?

Does the family have a written statement of the donor’s intentions for the foundation? Does the foundation have a written statement of the family’s philanthropic values? Does the foundation have a mission statement? How often does the foundation review the mission statement?

According to Gersick and his research team in Generations of Giving, “a clear current mission is the single best predictor” of most foundation performance variables. Mission clarity correlates with a clearer program, greater grant-making vitality, better successor development, quality control and organizational structure. Moreover, it’s especially helpful for families because a clear mission fosters better family collaboration, greater likelihood of continuity, more next generation enthusiasm and a positive
family dynamic.

The foundation respondents reported a robust engagement with their values in the continuing development of a clear mission. Families take the foundation donor’s values seriously, with 65 percent saying those values are important in guiding their current decisions. Over half have a written statement of the donor’s intentions. They also are clear about their mission: 82 percent have a written mission statement and they take those statements seriously, with most of them (76%) reviewing the statements at least once every five years. In addition, most indicated that their mission statements are specific (72%), reflect the foundation’s values (95%) and are understood by board members (98%) and family members (80%).

Does the family foundation invest in governance?

Does your client’s foundation have a written statement of board members’ key responsibilities? Do board meetings have clear written agendas? Good member participation? Productive outcomes? Does the board regularly do a self-assessment?

Family foundations also take the duties of trusteeship seriously. Family foundations report that their boards are very involved in the work of the foundation. Board meetings have good participation rates, with 94 percent of board members attending the foundation’s last board meeting. In addition, 92 percent reported good member participation in discussions and 95 percent said the meetings lead to productive outcomes.

However, several points provided cause for concern. Only about half (53%) of the responding foundations indicated having a written conflict of interest policy. Furthermore, most boards (66%) reported having no process for self-assessment.

Contrast this to how foundations reported their performance around fiscal responsibilities. Almost all the foundations reported good fiscal oversight. Foundations have clear assignment of investment responsibilities and regularly review the foundation’s finances.

Amid media and regulatory scrutiny, foundations are often loathe to invest in themselves, concerned that the expenses will be perceived as unnecessary overhead at best and at worst divert importance charitable resources. Gersick and his team, however, found that, far from overspending, family foundations typically under-resource their own organizations, especially when it comes to governance. NCFP Senior Fellow Alice Buhl recommends creating a governance committee, similar to the investment committees found at many family foundations, to insure that the foundation takes as much care of its board as it does of all of its
financial assets.

Are your clients managing conflict or avoiding conflict?

Do most family members work together comfortably? Do they discuss family culture? Are they able to deal with conflict when it arises? Does conflict interfere with the foundation’s functioning?

There are a number of stereotypes of family foundations that are pervasive even among the groups that claim to serve them. One that continually emerges is that of the conflicted family. Fed by media reports of scandal, families are thought to be less professional and perhaps less effective because of family disagreements.

This downplays the conflict that arises in any organization full of people and ignores the positive side of family involvement on foundation boards: the personal and familial connection to the legacy of which the foundation is a part, to the communities the foundation supports and, of course, to
one another.

In fact, the Pursuit of Excellence survey discovered that the majority of family foundations report working comfortably together. For the most part, they regularly discuss the family’s culture, support healthy dissent and are able to deal with conflict. According to most respondents, when conflict did arise, it did not interfere with the functioning of the foundation.

It is important, however, to note that Gersick found that low levels of conflict may be the result of high levels of avoidance of family dynamics issues. Anticipating the potential for family conflict, families simply avoid it. Well-developed governance, decision-making and grant-making policies, however, can help a family channel differences of opinion appropriately, allowing them to effectively confront conflict and manage it.

What kind of grant-maker are they?

Does your client have a formal process for accepting, reviewing and deciding on grant requests? Are grant decisions made collectively by the board? Does the board review the foundation’s grant-making
process regularly?

The Pursuit of Excellence survey indicated that most family foundations are engaging in recommended practices when it comes to grant-making. The majority make decisions collectively and not at the whim of any one individual. Most make grant guidelines available publicly, accept proposals from new non-profits, link program goals to their community’s needs and have procedures in place that allow grantees to communicate and
provide feedback.

Family foundations are also branching out as grant-makers. They are not only funding locally, statewide and nationally, but a significant number of them (21%) are also giving internationally. Some of these foundations are also using other philanthropic tools, such as providing technical assistance to grantees and convening meetings and forums to meet their philanthropic goals. They are missing, however, important learning opportunities. While most family foundations (61%) offer their board some type of financial support to attend grant-maker or nonprofit association meetings and conferences, very few board members, about three in 10, avail themselves of these opportunities. This suggests that many trustees are not receiving the educational and networking benefits provided to the field by donor organizations — affinity groups, regional associations and the national associations. Inasmuch as these organizations connect funders to new ideas and potential collaborators, families may be losing out on opportunities to improve their grant-making.

Do they have a plan for the future?

Does the foundation have a written statement about its future vision? Does the foundation plan to continue beyond the current generation of leadership? Is there a plan to involve the next generation and/or develop possible future leaders?

Family foundations have, for the most part, set up impressive shops to manage the foundation’s day-to-day business. Most of the responding foundations (71%) have full or part-time paid staff, either family or nonfamily. A similar percentage report having written job descriptions and provide benefits to paid staff. Most also report family members serve as unpaid staff. Most respondents said they have adequate human resources to accomplish their mission.

But are these foundations prepared for the future? Only about one-quarter of the foundations (27%) have defined their vision for the future. Less than half have clear staff evaluation procedures and there is comparatively little agreement that resources for strategic and evaluative tasks are adequate.

Additionally, a majority of family foundations reported that they rarely involve family members who are not on the board in discussions of values (57%) and about the foundation’s future (64%). Given that almost eight in 10 of these foundations plan to continue beyond the current generation and that the next generation of leadership for most of these foundations will come from other family members, it is helpful for family members besides board members to be involved in such discussions. While most respondents (59%) feel their next generation is enthusiastic about participating, only 39 percent have a succession plan. Families are very much prepared for the everyday challenges of philanthropy, but can be encouraged to chart their courses for the future, which, as Pursuit of Excellence seems to indicate, is very much a bright one.

Highlights from Pursuit of Excellence are available at www.ncfp.org. The full report is forthcoming from the National Center for Family Philanthropy.